The above disconnect occurred for a number of reasons (less savings, transfer payments [i.e. unemployment], return on financial assets, borrowing [credit is down due to defaults, but net borrowing is actually up], and missed mortgage payments [some evidence that people are spending what "should be" their mortgage).

None of which are sustainable.

As a result, look for consumption to slow unless wages and actual income levels begin to rise.

Of course, the bigger point being that personal consumption is *not* what the US economy needs to get us out of this crisis. Savings must be increased and debt must be reduced so that real long term sustainable capital can be built. And that will almost surely not happen in a rising consumption environment.

Great charts. And of course I agree with you. The government can only keep manipulating the CPI numbers for so long before people figure out they are full of it. Gas is almost double what it was last year yet CPI growth is only .1%. Yah, ok. -_-

In other news I saw SLW just hit its 52 week high over $20 a share while gold is at $1187. *pops champagne* I almost yelled at my desk when I saw it. Do you think this price will hold? Will it pull back? Go higher?

>>The government can only keep manipulating the CPI numbers for so long before people figure out they are full of it. Gas is almost double what it was last year yet CPI growth is only .1%.

Exactly.

>>BTW. 3 articles in the top 5? You are the new Alstry. Just kidding.

Nooo!!!!

>>In other news I saw SLW just hit its 52 week high over $20 a share while gold is at $1187. *pops champagne* I almost yelled at my desk when I saw it. Do you think this price will hold? Will it pull back? Go higher?

booyah!! I love it! (my investment account loves it too :) ).

>> Do you think this price will hold? Will it pull back? Go higher?

I do think it will go higher. But if you connect the 2007 peak with the 2008 peak and draw a line, you get an (almost) flat line around $18. If we do get a pullback (and we will eventually) that should serve as *strong* support. I don't know if it will pullback that far, but if it does, I will certainly be buying there.

Yes, it is really hard to understand where the money for the consumption is coming from.The wages have been stagnant for years (since 2000 recession), while various taxes anf fees are going up, everything gets more expensive. I know that I am not spending more, unless you consider higher property taxes and higher utility bills and higher food cost consumption. That would be forced consumption, though -)).

I think the CPI is rigged and so increase in cost due to inflation is nto deflated accordingly and therefore consumption appears to be rising. It still doesn't explain the growing delta between the wages and the spending , though. At some point it has to stop. Another 2 years I am thinking? If the consumption is financed via unpaid credit / default it means the banks are carrying the difference on their books and are not recognizing it. How long cn they pretend? Probably no more than 2 years.

You hit the nail on the head. What we are seeing and will continue to see is a lack of qualified demand for housing, cars, other manufacturered goods. Interest rates will rise and will further crush consumer spending which represents over 70% of our GDP.

Median household income has remained flat, yet consumer prices have continued to rise even in the bogus numbers the government publishes.